L-3 Releases First Quarter 2016 Results

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L-3 Communications Holdings, Inc. today reported diluted EPS from continuing operations of $2.08 for the quarter ended March 25, 2016 (2016 first quarter) compared to diluted EPS from continuing operations for the quarter ended March 27, 2015 (2015 first quarter) of $1.20 and adjusted diluted EPSfor the 2015 first quarter of $1.38. Net sales of $2.4 billion for the 2016 first quarter decreased by 5% compared to the 2015 first quarter. Excluding sales from divestitures and acquisitions, net sales (organic sales) decreased 2.1%.

“Our on-going efforts to transform L-3 into a stronger, more efficient company and enhance margins were evident with our solid first quarter performance,” said Michael T. Strianese, chairman and chief executive officer. “All of our segments contributed to our strong operating margin performance, which increased 230 basis points to 10.7 percent, driven by favorable contract performance and operational efficiencies across the organization. We also completed the sale of the National Security Solutions (NSS) business, a key milestone in our plan to re-focus the company on higher margin, higher returning businesses. I am pleased with our start to the year, especially our operating margins and book-to-bill ratio.”

First Quarter Results of Operations: For the 2016 first quarter, consolidated net sales of $2.4 billiondecreased $135 million, or 5%, compared to the 2015 first quarter. Organic sales declined by $52 million, or 2.1%, for the 2016 first quarter. Organic sales exclude $114 million of sales declines related to business divestitures and $31 million of sales increases related to business acquisitions. For the 2016 first quarter, organic sales to the U.S. Government increased $62 million, or 4%, and organic sales to international and commercial customers decreased $114 million, or 14%.

Segment operating income for the 2016 first quarter increased by $43 million, or 21%, compared to the 2015 first quarter. Segment operating income as a percentage of sales (segment operating margin) increased by 230 basis points to 10.7% for the 2016 first quarter, compared to 8.4% for the 2015 first quarter. Segment operating margin increased by: (1) 170 basis points due to improved contract performance, (2) 70 basis points due to higher margins resulting from acquisitions and divestitures and (3) 50 basis points due to lower pension expense of $11 million. These increases were partially offset by a decrease of 60 basis points due to a $15 million increase in the product returns allowance for EoTech holographic weapons sight (HWS) products. See the reportable segment results below for additional discussion of sales and operating margin trends.

The effective tax rate for the 2016 first quarter decreased to 22.3% from 30.5% primarily due to: (1) the early adoption of a new accounting standard related to income tax benefits from employee stock based compensation awards, which resulted in a $10 million reduction to income tax expense, and increased diluted EPS by $0.13, and (2) a benefit from the reinstatement of the Federal Research and Experimentation (R&E) tax credit.

Diluted EPS from continuing operations increased 51% compared to adjusted diluted EPS of $1.38 for the 2015 first quarter. The 2015 first quarter adjusted diluted EPS from continuing operations excludes a pre-tax loss of $22 million ($15 million after income taxes), or $0.18 per diluted share, related to the divestiture of Marine Systems International. Diluted weighted average common shares outstanding for the 2016 first quarter declined by 6% compared to the 2015 first quarter due to repurchases of L-3 common stock.

Orders: Funded orders for the 2016 first quarter were $2.6 billion, substantially unchanged compared to the 2015 first quarter. The book-to-bill ratio was 1.10x for the 2016 first quarter. Excluding the impacts of business divestitures and acquisitions, orders grew by $73 million, or 3%. Funded backlog increased 3% to$8.7 billion at March 25, 2016, compared to $8.4 billion at December 31, 2015.

About L-3

Headquartered in New York City, L-3 employs approximately 38,000 people worldwide and is a leading provider of a broad range of communication and electronic systems and products used on military and commercial platforms. L-3 is also a prime contractor in aerospace systems.